Stakeholders, including Uncle Sam, are betting billions on an assumption that’s worked only in some instances and under specific conditions

Frank Diamond

Managing Editor

Someday we’ll get there. Someday in the future (the near future?) we’ll refashion the health care system so that the mantra “improving quality saves money” will become as fixed a formulation as E=mc2. It practically is already. There are believers everywhere.

Why, just last month, Health and Human Services Secretary Kathleen Sebelius launched the Partnership for Patients initiative. The government hopes that the program, aimed at making hospitals safer, will save $35 billion in health care costs, including $10 billion for Medicare over the next three years, $50 billion in Medicare over the next 10 years, and even more in Medicaid. The key? Improving quality, of course.

Sebelius said: “Working closely with hospitals, doctors, nurses, patients, families and employers, we will support efforts to help keep patients safe, improve care, and reduce costs. Working together, we can help eliminate preventable harm to patients.”

And, did we mention, save a ton of money doing so? It’s a beautiful dream, but what if it’s not true? What if improving quality won’t save money?

Just asking

Michael Tanner, director of health and welfare studies at the libertarian Cato Institute, says that quality is somewhat akin to motherhood and apple pie: Everybody’s for better quality. However, just what is meant by quality is difficult to nail down because “there’s not been a lot of research on this. Quality often comes at a price. More technology will certainly lead to better outcomes in many cases, but it’s also more expensive.”

Cutting down on errors will save money. On the other hand, more prevention does not, says Tanner. “Is quality something that reduces cost? Then, it’s self-evident. Is quality something that produces better outcomes? Well, then it might not be cost-effective. Is quality better health at the end of it? Or is quality getting people out of the hospital more?

“This is one of those all-purpose terms that can mean almost anything, and in that sense it’s meaningless.”

There are indeed things that can be done to improve quality in a cost-effective way here and there, says Mark V. Pauly, PhD, professor of insurance and risk management at the Wharton School of the University of Pennsylvania. However, programs that do so are not numerous enough to really affect the health care system.

Pockets of quality care

When some approach to care does demonstrate that it improves quality while cutting costs, it’s replicated. The Journal of the American Medical Association published a report in 1999 about how nurse intervention can cut back on hospital readmission. Similar programs have cropped up since and we may expect more to follow, thanks to readmission penalties under health reform.

However, one should not read too much into such success stories, cautions Mark V. Pauly, PhD, professor of insurance and risk management at the Wharton School of the University of Pennsylvania. He was one of the coauthors of the 1999 study that showed how nurse intervention at the Hospital of the University of Pennsylvania “worked like a charm. It saved money and improved quality.”

It’s a small victory. “Although it saved a statistically significant amount, despite all my enthusiasm, I don’t think that the Transitional Care Model is going to solve the health care problem relative particularly to the enormous Medicare problem.”

Source: Journal of the American Medical Association

“There’s a difference of opinion among economists based mostly on their politics, but I find it hard to believe that there are enough of these magical cases out there,” says Pauly.

Most serious economists will not say that improving outcomes saves money. “You hear it among politicians and any economist who wishes to pursue political office, but I don’t know if you hear it more generally,” says Pauly. “My take on it is sometimes improving outcomes does save money, but sometimes it doesn’t.”

Little distinction

Pauly was speaking about outcomes specifically, not quality as a whole, but he later said that there is really little separating the two terms. “I don’t see the distinction,” Pauly says. “If you give good quality to people with chest pain, fewer of them will die. You need to measure outcomes as population averages; anything can happen in an individual case. The fact that health outcomes depend in part on the quality of care, but also on random events or God’s will, means that you have to look at how things work out for groups of people.”

With that said, expectations for savings are somewhat unfounded, says Pauly. “Given the kind of money we’d like to save, there is little reason to think that there are enough of those examples where you can improve outcomes and save money that could give you the total savings that people have in mind.”

Michael L. Millenson is president of Health Quality Advisors, a company that works with those interested in using better information to improve health and health care. Millenson, a member of our Editorial Advisory Board, devotes a chapter of his book, Demanding Medical Excellence: Doctors and Accountability in the Information Age, to tracing how the idea that “quality is free” became a staple of health care policy.

In his book, Millenson recounts the influence of quality improvement expert W. Edwards Deming’s theories on efficiency on post-World War II Japan. In the early 1980s, when Japan seemed to be the rising industrial juggernaut and American business people scampered to find an answer, Deming suddenly found himself in demand back in this country. His ideas — the basis of Toyota’s famed quality control process — migrated to health care, thanks, at first, to Paul Batalden, MD, a “midlevel administrator at a large multispecialty physician group in suburban Minneapolis,” and then, through Batalden, to someone who would prove to be even more influential, Donald M. Berwick, MD. Berwick, on the advice of Batalden, went to one of Deming’s seminars and came back full of enthusiasm for the new way.

Millenson says that “Systematic quality improvement comes from the industrial model of system improvement. The idea of efficiency and effectiveness being free comes from the idea that products made right the first time save you the cost of re-dos and can even boost sales; hence, high quality pays for itself.”

Berwick, the current head of CMS, spread the gospel that improving quality reduces costs through his Institute for Healthcare Improvement. Along the way Berwick, along with Arnold S. Relman, MD, the former editor of the New England Journal of Medicine, estimated that “30 percent of the system is waste.”

Educated guess

Millenson points out that what has been lost over the years is that this was always an educated estimate, not a figure based on extensive research. There’s no doubt, of course, that if quality improvement efforts could shave off anywhere close to a third of roughly $2.5 trillion the United States pays for health care, the savings would dwarf the cost of obtaining them, he says.

Mireille Jacobson, PhD, a senior economist at Rand, says that there’s a general sense among health care players that low productivity dogs the system. “What that suggests is that if you improve productivity, we could actually gain efficiencies,” says Jacobson. “There’s probably some truth to that. Do we know exactly what we need to do on a large scale to gauge those efficiencies? We don’t have a magic bullet for that.”

Yet, the 30 percent figure had become almost dogma by the time an analysis of the Institute of Medicine’s Crossing the Quality Chasm report commissioned by the Midwest Business Group on Health was issued in 2003.

That analysis, “Reducing the Costs of Poor-Quality Health Care Through Responsible Purchasing Leadership,” states that “There are no definitive studies that estimate the direct costs of poor quality. But based on available evidence and the reasoned judgment of respected experts, the authors estimate that at least 30 percent of all direct health care outlays are the result of poor-quality care, consisting primarily of overuse, misuse, and waste.”

Berwick tried to better nail down the 30 percent figure, but to no avail. In a study published in the March/April 2003 issue of Health Affairs, he asked: “Simply put, does improving quality yield a return on investment?” The short answer? We don’t know for sure and we need more studies.

“The Business Case for Quality: Case Studies and an Analysis” examines four quality improvement efforts that focus on high-cost pharmaceuticals, wellness programs at work, smoking cessation, and disease management. In it, Berwick notes that “health care organizations may be reluctant to implement improvements if better quality is not accompanied by better payment or improved margins, or at least equal compensation.”

Bottom line

Berwick continues, “Without a business case for quality, we think it unlikely that the private sector will move quickly and reliably to widely adopt proven quality improvements.” Making a business case excludes other reasons for quality improvement, such as professional ethics or government regulation, Berwick notes. “As several of these case studies demonstrate, these less tangible motives are real; nonetheless, we doubt that nonfinancial motivations are sufficient, without a financial return, to drive and sustain widespread adoption of improved quality practices.”

Berwick still beats the drum for quality. In last month’s announcement about the Partnership for Patients initiative, he said, “With new tools provided by the Affordable Care Act, we can aggressively implement programs that will help hospitals reduce preventable errors. We will provide hospitals with incentives to improve the quality of health care, and provide real assistance to medical professionals and hospitals to support their efforts to reduce harm.”

Meanwhile, Millenson notes, tongue firmly in cheek, that both terrible quality and superb quality could save costs — at least in theory. “After all, if you put a patient in the hospital, if the hospital cures you or kills you on the first day, that’s the lowest cost,” says Millenson. “While obviously that’s an outlandish scenario, the fact that it is theoretically possible tells you that the quality-is-free saying needs to be looked at more rigorously.”

The Midwest Business Group on Health’s study suggests that communities in which patients and providers strive for better outcomes spend much more on care than is necessary to improve care. “Unnecessary surgeries, tests, and other procedures — events that would not typically be classified as errors — put patients at risk while driving up health care expenses,” the study states. “This overuse appears to be more prevalent in communities with a high concentration of specialists and excess hospital capacity.” Millenson says he’s not surprised. “If every time that I hurt my elbow playing tennis I get an X-ray, at the end of years of X-rays that I’m not paying for, costs have gone up and I could have cancer to boot.”

Millenson also cites the studies by Dartmouth’s Elliott Fisher and colleagues showing that Medicare regions with high utilization can have costs that are 30 percent more than low-utilization regions, but actually score lower on measures of quality of care and satisfaction. That, says Millenson, “could be because of medical errors or side effects or a host of other factors we don’t capture in most of our data today.”

Indeed, the statement that improving quality cuts costs suggests a follow-up question: Whose costs? If we took the money saved from overuse by the well-insured, says Millenson, “we could give good care to people who are now undertreated. And the irony is that as the Dartmouth studies show, those who are being overtreated are probably being hurt by overtreatment, and neither they nor their doctors know it.”

MANAGED CARE Editorial Advisory Board Member Richard G. Stefanacci, DO, agrees that who pays is always a crucial question. Take, for instance, improving medication adherence. “Clearly this will increase pharmaceutical costs while potentially decreasing costs of medical services,” says Stefanacci, who is the chief medical officer of Access Group/Promidian. “So for a prescription drug plan or a pharmacy benefit manager, clearly improving quality will not reduce costs in the case of medication adherence.”

To address the question of whether improving quality actually cuts costs, one first must define quality, says Stefanacci. Such a definition is extremely difficult, if not impossible, to come by. “For one, many long-held beliefs of improved quality are simply not true — for example the frequency and benefit of mammography and PSA screening have been shown to actually not improve quality,” says Stefanacci. “Also there is a danger in applying a broad definition of quality especially at a time that we are moving toward more patient-centered care — focusing on individualized quality that makes broad application of outcome standards difficult if not impossible.”

One of the strongest contradictions to the “improving quality saves money” stance was a 2009 study in Health Affairs that looked at disease management programs, says Stefanacci. “Disease Management for Chronically Ill Beneficiaries in Traditional Medicare” tests the cost-effectiveness of 35 DM demonstration projects staged by CMS. The study states that “no single measured program or intervention characteristic, or even a small subset of them, stands out as a clear and consistent determinant of overall program success in evaluations.... To be worth a national policy initiative, the intervention features must be clearly identified and successful outside of the unique organizational and geographic conditions tested in the demonstration.”

There are definitely pockets of care where quality does save money. Brent James, MD, the chief quality officer and executive director of the Institute for Healthcare Research at Intermountain Healthcare, says he’s developed many programs “where quality improvements reduced internal cost of operations, often quite significantly. The problem, of course is that perverse payment mechanisms usually mean that my revenues fall as far or further than my operating costs. Under the present system, all savings (plus, often, some additional operating margin) goes back to [employers] as windfalls.”

What makes sense

It comes down to common sense, says Pauly. “The general economic proposition I learned from my dad, not from economics, is that it’s hard to save money by spending money.”

Geisinger argues that improving quality can save money

The book Demand Better! Revive Our Broken Healthcare System tries to pinpoint why the system struggles. “If we spend the most on health care per capita of all developed countries, why do we have a quality deficit?” ask authors David B. Nash, MD and Sanjaya Kumar, MD. “We can answer that in three words: unexplained clinical variation. That is the core problem in American medicine, and it stems from large gaps in scientific backing for much of what physicians do.”

That’s a theory that officials at Geisinger Health Plan acted on in February 2006 when the insurer, in conjunction with Geisinger Health System, launched its much-touted and reported-on Proven Care program. “One of the areas we have spent an incredible amount of time working on is to eliminate unjustified practice variation,” says Jean Haynes, RN, MBA, the plan’s president and CEO. “What we have demonstrated repeatedly is that when we eliminate unjustified variation, we improve quality and reduce cost.”

Of course, mention reducing costs, and the reaction often is “Whose costs?”

“We have examples where we show we reduce both the cost for the provider and for the payer,” says Haynes. On the provider side, Geisinger Health System decreased direct costs for a Proven Care coronary artery bypass graft (CABG) by 5.1 percent, she says. This increased inpatient earning per CABG by $2,560. For Geisinger Health Plan, the cost per Proven Care CABG decreased 4.8 percent.

Hospital mortality

Quality improvement can be seen even in a reduction of hospital mortality. “What more important outcome can there be but that?” says Haynes, who adds that there are various reasons for unjustified variation. “Some are regional or geographic variations. Others could be physician or patient preference. Another could be perverse financial incentives.”

Eliminating variation has resulted in higher satisfaction for patients, family members, and physicians, she adds.

Yes, initially doctors were a bit wary. “The reality is that this is health care and there are unique circumstances for individual patients,” says Haynes. “You have to be able to individualize that care as necessary. What we’ve always enabled to happen is that when it is justified that you deviate from the best practices of what is the current evidence-based standard of care, you just document why that is occurring. Once providers understood that that was acceptable, then there was complete buy-in.”

Geisinger’s data now show that actual deviation from best practices happens rarely. Meanwhile, “We’ve seen tremendous improvement in outcomes and a reduction in costs.”

For example, the number of Proven Care patients with any complication after a coronary artery bypass graft (CABG) decreased 13 percent, and readmissions within 30 days decreased by 20 percent.

Serious economists do not think that improving quality cuts costs, says Mark V. Pauly, PhD, of the Wharton School at the University of Pennsylvania.

Midwest Business Group on Health’s study suggests that communities in which patients and providers strive for better outcomes spend more on care than is necessary.

Quality improvements can cut costs internally, argues Brent James, MD, of Intermountain Healthcare. However, under the present system all the savings, and often additional operating margin, go back to the employers.

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